On the backdrop of liquidity squeeze, $3.8 billion pumped into Indian real estate by PE Funds

Private equity funds are rescuing the cash-starved real estate sector after banks and NBFCs turned their back on it. Private equity funds have invested $3.8 billion in Indian real estate on the backdrop of the liquidity squeeze in the first nine months of the calendar year. The amount is 19 percent higher than the $3.2 billion invested during the same period in the previous year, as per ANAROCK Property Consultants data.

 

According to, most of it went to commercial real estate and close to half to Mumbai. Investment in the National Capital Region (NCR) however declined.

 

As much as 95% of the money, or $3.6 billion, flowed in as equity investment at a time when other financiers are either avoiding exposure to the sector or have increased the risk weight associated with it. The remaining 5% was in the form of structured debt.

 

“Commercial real estate continues to be the hot investment target for private equity investors in 2019 and the trend will most likely continue in the quarters ahead,” said ANAROCK Capital managing director and CEO Shobhit Agarwal. “To add to it, the success of India’s first Reit (real estate investment trust NSE 4.75 %) is a major draw for global investors who are keen to capitalize on the country’s high demand for Grade A commercial real estate.”

 

He reckons many investors are eyeing similar Reit opportunities, which in turn will open up more funding avenues for the sector as and when several large developers begin to list their commercial assets. India’s first Reit, the Embassy Office Parks Reit, was launched in March. NBFCs have been hit by a liquidity crunch in the wake of defaults by Infrastructure Leasing & Financial Services (IL&FS) last year.

 

While domestic investors’ appetite for the real estate sector has weakened, overseas investors are reposing their faith in it and also taking advantage of the ongoing liquidity scenario. Of the $3.8 billion invested so far, the third quarter alone has attracted nearly half of this amount.

 

Foreign private equity funds continued to dominate the real estate investment scene. Top investors included Blackstone, Hines, Ascendas, and Brookefield.

 

“Rise in equity investment points at institutional investors’ confidence in underlying growth in the Indian economy,” said Bhairav Dalal, real estate tax leader, PwC India. “The ongoing transformation in the Indian real estate sector is expected to push long-term returns upward even though it is facing short-term hiccups right now.”

 

According to Bhairav, institutional investors will continue to prefer commercial real estate assets given the robust demand and more monetization avenues including the Reit market opening.

 

Commercial real estate continued to lead the funds’ inflow, attracting 79% of the total investment of $3 billion, in the first three quarters, up 43% from $2.1billion in the year-ago period.

 

The residential segment attracted $295 million against $210 million a year ago. Retail and logistics and warehousing have seen total inflows of around $260 million and $200 million so far in 2019, respectively.

 

Among key markets, the Mumbai Metropolitan Region (MMR) saw the maximum inflows at $1.59 billion, up 3%. Neighboring Pune registered more than a 200% rise in investments to nearly $390 million from $125 million. Hyderabad saw a 76% decline to $190 million. Bengaluru had a 17% yearly gain at nearly $490 million in 2019. Private equity funding in NCR, however, fell further in 2019 to $115 million from $150 million.

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